Finance
What is a bond? How does it work?
It's a type of financing that a firm will use to generate capital. The person gives a certain amount of $$$, and after the contract is up, they receive that $$$ in full. They are paid interest (usually) semi-annually on the amount they loaned.
A company buys land for $1,000,000 with a salvage value of $250,000 and a useful life of 65 years. What is the yearly depreciation?
Trick question lol. You don't depreciate land.
What is the statement of cash flows used for?
To note the change in cash from one year to the next.
Why is there a limit on authorized shares?
Because you don't want to lose ownership of your company.
What is a ratio used for?
To evaluate a financial statement and look for red flags. It allows you to quantify a financial statement.
What type of financing is known as "free money"? Why?
Equity Financing
I buy a safe to store all my money (I have lot's of money) for $150,000 and it has a salvage value of nothing because I personalized it. It's useful life is 10 years. After year 7 I sell it for $75,000, because my money needs a change of scenary. How will this be refelcted on the income statement.
A gain of 30,000
Under the indirect-method what is added back to net income? Why?
Depreciation/Amortization, Gains/losses, other non cash expenses. Because Net income would be understated on the statement of cash flows otherwise.
A company issues 20,000 shares for $15 with a $5 par value. What is the journal entry?
Debit cash: $300,000
Credit Common Stock Par: $100,000
Credit Additional Paid in Capital: $200,000
What would be a red flag when looking at a company's ratios?
A super significant increase or decrease in accounts.
A $200,000 bond with a stated interest rate of 5% is issued at par on January 1. Interest is paid semiannually on June 30 and December 31. What is the interest payment on June 30?
A company buys 20,000 shares of another companys stock for $35 per share. Next month the price increases to $40 per share but they hold onto it. What should they note this down as?
An unrealized investment gain of $5
A companies inventory goes from $10,000 to $15,000 over the period. How is this reflected on the statement of CF.
Decrease in cash of $5,000
Why would a company repurchase shares? Additonally, what is it called?
Treasury stock can be used to drive up price of the stock price. This can be done in place of a dividend, or given to employees as a benefit.
Significant Dawg's assets in 2023 are valued at $500,000; in 2024, they are valued at $630,000. Their net sales in 2024 are $600,000. What is their asset turnover? What does it mean?
1.062. This means that they can successfully turn assets into sales.
On January 1, Carter Co. borrows $300,000 by signing a 10-year, 9% installment note requiring annual payments of $47,106. What is the entry for the second annual payment?
Debit Interest Expense: $25,190.46
Debit Notes payable: $21,915.54
Credit Cash: $47,106
A company is holding onto stock that's worth $50 per share in November. The next month it goes up to $52 per share. The next month it goes up to $55 per share. How should this be recorded?
An unrealized investment gain of $3 per share.
A company's Accounts payable increased by $6,000 over one year. What happens to cash?
Increase of $6,000 in cash.
A company purchases 50,000 shares of it's own $5 par value stock for $35. What is the effect on Equity?
Increase treasury stock $1,750,000 and decrease equity that same amount. Treasury stock is a Contra-equity account.
What is the Price Earnings (P/E) ratio?
It's an investor's expectations of future growth.
On May 1, Callahan Company accepted a 90-day, 12%, $6,000 note from Lawson Company to settle an overdue account. What is the journal entry Lawson Company makes when it pays the note on the maturity date?
Debit Interest Expense: 180
Credit cash: 6,180
A company has 43,000 shares of stock valued at $15 a share. They sell it for $20 per share. What should be recorded?
Realized investment gain of $5.
Why is it a bad idea to keep cash on hand for long periods?
Because a dollar today is worth more than a dollar in the future.
How do you find the number of issued shares?
Outstanding shares + Treasury stock
A company's current assets are $300,000, and its current liabilities are $250,000. What is the current ratio? What does it mean?
1.2. They can successfully pay off short-term debts and stay profitable.